Once again there is reinforcement to the fact that it is very difficult, and complex, to import or export within the United States.

On April 21^st the Department of Justice filed suit in the Northern District of Texas on behalf of the Consumer Product Safety Commission (CPSC) seeking civil penalties and injunctive relief against a large retail chain.

The company became the focus of the suit as it failed to notify the CPSC of the substantial injury hazard of the product, despite several injury reports. One aspect of the case that needs to draw the attention of all importers is the fact that the CPSC is alleging that the company “sought to mislead CPSC as to its role in importing the defective product”.

The company sourced the product from an unaffiliated Chinese manufacturer through a procurement company.  They then imported the product claiming themselves as importer of record.  Under the regulations of Customs & Border Protection (CBP) the Chinese manufacturer is definitely considered the manufacturer, as the product is sold by them in a completed state. However, under CPSC regulations (16 CFR 1115.13), the “manufacturer” includes any party that imports a product into the U.S.  The retailer thus becomes a “manufacturer” under these regulations although they did not consider themselves as such.  They therefore failed to include significant additional information required of a “manufacturer” when they actually reported the hazard to CPSC.

As the complaint was so recently filed there is no resolution from the court, but the CPSC offered in their complaint several immediate lessons for importers, manufacturers, and retailers:

• Develop and maintain a formal compliance program – The CPSC cited the company’s lack of a formal compliance program or internal controls as grounds for establishing a permanent injunction. According to the CPSC they “had not adopted appropriate internal controls to ensure and monitor compliance”.
• Set up a continuous improvement loop – Companies should set up a continuous improvement loop that allows them to promptly address consumer complaints and make real-time changes to products accordingly. Retailers should be vigilant about potential design flaws throughout a product’s retail life.
• Report known defects “immediately” – under the CPSC regulations, once an entity has sufficient information to reasonably support the conclusion that a consumer product fails to comply with the applicable safety rule or standard, the entity is required to report “immediately” which is defined as within 24 hours (16 CFR 1115.14) Companies should develop a process for evaluating and documenting product data, and determining when they have sufficient data to mandate a report to the CPSC, and ensuring that hazards and risks are reported to the CPSC within 24 hours of making that determination.
• Be mindful of which entities have reporting obligations – importers are treated as manufacturers for CPSC purposes. Although a third company procured the product, the retailer was the importer of record and therefore the manufacturer as a matter of law for CPSC purposes. As a result, CPSC alleged that the company “conveyed a false impression” by identifying the procuring company as the importer of the vases.

This case makes three very important points:

1. CPSC has definitely stepped up enforcement efforts and is taking a very strong stance;
2. Not all U.S. agencies use the same definitions, and regulations can vary as this case dramatically presents. Those differences can have a huge impact on an importer. It is crucial for every importer to ensure that they know what agencies have oversight of their product and that their requirements and regulations are known and followed; and
3. The importance of having working compliance programs cannot be understated. They are a company’s protection from legal jeopardy. CBP has been pushing this requirement for several years now and you will see it pushed on more agencies who are working with CBP through the ACE portal.

In conclusion, this case is a wake-up call that government agencies that have not previously used all means of enforcement are now doing so.

By: Sue Linneman, Senior Trade Advisor